JAMES FLANIGAN

Baby Boomers Will Cushion Housing Slide

The government announced last week that new home construction fell in December, and some people were rattled enough to call it a warning signal of recession.

But predicting the economy on one month's housing starts, particularly those of a winter and holiday month like December, is stretching things. The housing report was not a warning of recession, but it may have been the first hard evidence of the stock market's crash affecting buyer confidence.

Otherwise, the housing figures give a pretty hopeful picture of the "baby boomers"--that sometimes misunderstood demographic phenomenon--continuing to spend on homes and home furnishings.

The steep decline in new home construction wasn't as bad as it seemed, first of all. Most of the drop was in apartment construction, which was affected by tax changes and past overbuilding.

The stock market's effect could be seen, though, in the 8% fall in single-family housing starts. How so? Because these days, two-thirds of all new houses are "move-up homes"--larger houses that people move up to because the kids are growing or simply because they have the money and would like a bigger house. It is discretionary spending, in other words. And it was postponed in December by a decline in buyer confidence, says Dale Stuard, an Orange County developer and president of the National Assn. of Homebuilders, who notes that people didn't buy despite falling mortgage rates. Also, existing home sales hit their 1987 low in November. So it looks like the crash produced an aftershock in housing.

But put that in perspective. Even at the reduced rate, new housing starts promise to top 1 million again this year. And 1988 sales of existing homes--3.25 million, according to projections of the National Assn. of Realtors--will be down only slightly from the 3.5 million record years of 1987 and '86.

The American consumer is still in there pitching--which is to be expected, given the numbers of the baby boomers, the catch-all phrase for the 71 million people born between 1946 and 1964. It was an explosion of fecundity: More than 4 million people a year were born in the 1950s, compared to 2.4 million a year in the 1930s, 3.2 million a year in the 1940s and 3.8 million in the 1960s, when the boom tailed off.

'Natural' to Borrow, Spend

Most of those boomers are now in their 30s--with growing families, which is why larger homes are being built and consumer spending has been so strong in this decade.

Some see trouble in that. Economists and other crepe hangers regularly predict America's decline because of the low savings and high borrowing of its consumers.

But that's baloney, says John Silvia, vice president of Kemper Financial Services. It's only natural, says Silvia, that growing families should be borrowing and spending. Furthermore, he says, they can afford it. Consumer debt, says Silvia, should be measured against consumers' growing assets, including their houses, rather than against their current incomes. In other words, he says, a lot of the debt is secured--directly or indirectly--by real estate.

And that supports furniture and appliance sales, says analyst Wallace Epperson of Wheat First Securities. "People selling a home take, on average, $40,000 in appreciation out of the old house," says Epperson. Most of that they apply to the down payment on a new house, but some--"maybe $6,000 to $8,000"--they apply to decorating the new home. That's why furniture sales have been strong.

But what's ahead? Home building, after years of expansion, will be slightly lower, says Barbara Alexander, a managing director of Salomon Bros. Overall home sales, however, continue to look quite strong, she says. Century 21, the national realty outfit, agrees, reporting good home sales almost everywhere except the Southwest--and even there, Dallas is coming back. Meanwhile, Southern California remains the nation's strongest real estate market.

Behind the strength, of course, are 55 million baby boomers, now in their family-raising years. They'll have time enough later to save for retirement--and for college tuition for the 3.6 million kids a year being born in this decade. The boom goes on.